Warren Buffett is renowned for his successful ventures in stock investing. He has gained a reputation as a philanthropist and as an investor due to his impeccable business acumen. As an investor, he focused on value investing and managed to be ranked among the most influential and richest men in the world. Value investing, derived from the ideas of Benjamin Graham and David Dodd, is an investment approach with the core principle of buying stocks according to the underlying value, or intrinsic value, rather than following the emotions of the stock market herd. Buffett, who was mentored by Benjamin Graham, has spoken many times about the benefits of value investing. So what exactly is value investing? Our guest, Guy Spier, shares his precious knowledge about how it works…

Who is Guy Spier and what is his book, The Education of a Value Investor, about?

Guy Spier is the author of the book, The Education of a Value Investor. Currently, Spier is the CEO of Aquamarine Capital. His fund concentrates on investing in publicly traded equities. Today, it is implemented according to the ideas represented in Buffett’s original 1950’s partnerships (Buffett ran multiple partnerships during that decade). With amazing credentials from Oxford and Harvard, and an impressive record of stock returns, Spier is considered a worldwide authority in value investing. His book is a very honest account of his transformation to become a successful investor. Spier is very open about his initial setbacks and experiences, which have guided his investment approach to what it is today. Every year, hundreds of thousands of people travel to Wall Street in droves to achieve something in their life. Obtaining a degree from Harvard, Stanford, or Oxford is definitely not a piece of cake, so most students who graduate with their shiny diplomas usually head-over to Wall Street to master the tricks of the trade. Similarly, Spier, fresh out of Harvard University, stepped into the world of investments, determined to become the Gordon Gekko type.

Most students who graduate from prestigious universities are usually driven with high ambitions. Guy was no different. After he graduated with an MBA in Economics from Harvard, Spier took up a job at D.H. Blair as an investment banker. While there, he gradually realized that the working environment was compromising both his personal values and ethics. Now this is where the book is different. Instead of dishing out advise about investing, Spier talks about how he was forced to take a good look at himself. He rose to the challenge and devoted most of his time reading and understanding more about ultra-successful investors – like Warren Buffett. Since then, Spier hasn’t looked back and has modeled his life after powerful people like Buffett, Munger, and Benjamin Franklin. Most importantly, he has worked hardest on becoming a more authentic version of himself.

While Spier talks about a variety of investment principles he adopted from Warren Buffett in his book, what’s more fascinating is how he focuses more on personal growth and development from Buffett, rather than stock investing. He stresses that it’s vital to have an inner scorecard instead of an outer scorecard in life. An outer scorecard is used when you compare yourself to everyone else’s accomplishments, whereas an inner scorecard is all about judging yourself and seeking self-improvement. Simply put, you either live your life on your own conditions or care about what others think and have. The book talks about how investing is not all about money, but has a larger and deeper meaning. It advocates how authenticity can help you become a better investor and a better person. Authenticity cannot be taught, but it’s something that should be ingrained in an individual. Being authentic helps a person accept his own mistakes and learn from them. This truly is one of the most important elements for an investor as he/she strives to become a better version of themselves, instead of copying others. To prove his point, Spier describes how Buffett has conquered stock trading all while being true to his own self. He was successful with Berkshire Hathaway simply because it suited his temperament and not because it guaranteed high, profitable returns. Sure, we should all learn from our idols and heroes, but at the end of it all, we should never compromise our own essence.

Every year, Warren Buffett holds a charity lunch to raise money for a worthy cause. While winning bids have reached up to $3.5m in recent years, it’s important to note that the benefits go to the Glide Foundation in San Francisco. Guy Spier and his friend Mohnish Pabrai were among the lucky people to bid and earn a ‘power lunch’ with the brilliant philanthropist.

Spier and Pabrai met each other at Pabrai’s shareholder meeting a few years before the lunch with Buffett. Over time, their friendship blossomed and they also formed a Mastermind Group about investing. As of today, Pabrai is the managing partner of the prestigious Pabrai Investments, which was founded in 1999. You can read more about how Pabrai was also inspired by Buffett’s principles. Pabrai has managed to crush the market since 2000 by 1100%. Also, in Episode 4, we discuss Mohnish Pabrai with Hari Ramachandra.

So why did Spier and Pabrai invest heavily in the lunch with Buffett? First, it was a great opportunity to donate to a very worthy charity foundation that offered a lot of support to underprivileged people. Second, Spier and Pabrai wanted to show their gratitude to Buffett for everything he had taught them.

Spier and Pabrai, along with their families, met Buffett at Smith & Wollensky, a steakhouse in Manhattan. To Spier and Pabrai it was a family event – not a business deal. In, The Education of a Value Investor, Spier mentions a memorable moment during the special event. To provide a little context, it’s important to note that before the lunch with Buffett, Guy felt compelled to change the management fee structure of his fund. Generally, most hedge fund companies charge a 2% management fee along with an extra fee once profits go above a specified rate. Either way, the manager is getting paid if the fund performs or underperforms. Inspired by Buffett, Guy changed the structure of his fund so that investors only pay a fee if he produces returns higher than 6% (annually). Anything less than that, and Guy is working for free. As a result of this drastic and difficult change to his fund, Guy told Warren about this decision and how difficult it was for him. Buffett responded, “People will always try to stop you from doing the right thing if it is unconventional.” Guy then asked Buffett if doing the right thing would get easier with time. After a long pause, Buffett responded, “Just a little.”

For most people, spending $650,000 on a lunch may seem ridiculous, but for Spier and Pabrai, it was an experience of a lifetime. To them, it was a priceless event that was more symbolic and appreciative for what they had learned from their mentor. The next lunch auction with Buffett closed at $2.1 million, so I’m sure Guy and Mohnish can take great joy in knowing they purchased their intellectual property for a 25% discount of the following year’s market price.

How a lunch with Warren Buffett can change your life

For most people, they might have lunch with a person and then forget the experience a month later. This wasn’t the case for Guy. In fact, Guy experienced a major shift in his mind-set and also his location after the lunch with Warren. Guy started to have an appreciation for the calm bliss and balanced mind-set that Buffett displayed during the meeting. As Guy strongly contemplated the work environment in which he lived, he quickly realized Wall Street wasn’t necessarily the hub of serenity. As Spier analyzed Buffett’s decision to live in Omaha, Nebraska to get away from the Wall Street noise, Guy became increasingly intrigued with the idea of moving to a new town. As Guy looked at new locations, he decided on Zurich, Switzerland as the perfect home. According to Buffett, staying away from the market noise makes it easier for an investor to focus on the value and quality of a company.

Additionally, during the lunch with Buffett, Guy Spier realized the enormous power of surrounding himself with extraordinary people. Buffett is famous for saying that, “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.” To Spier, the lunch with Warren Buffett was never about extracting investing knowledge from the greatest investor in history. It was a conscience choice to continue drifting in the direction of people he admired. The experience was a significant chapter of his education as a value investor, and more importantly a valuable reminder of finding peace in becoming a more authentic version of himself.

Additional Resources on Guy Spier

Guy’s Speech at Google

Guy’s Speech at Boston College

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